Google, Apple and other big tech firms team up to buy Kodak patents for $525 million

By Beth Jinks Bloomberg News

Posted:
12/19/2012 08:22:24 AM PST

Updated:
12/19/2012 01:44:31 PM PST

A group including Apple (AAPL), Google (GOOG) and Research In Motion agreed to buy patents from bankrupt Eastman Kodak for about $525 million, gaining the right to use the digital technology to capture and share photos.

The group is led by Intellectual Ventures Management and RPX, Kodak said in a statement Tuesday. Google, Apple and RIM are among the 12 companies that will license the patents in the deal, according to a court filing. Under the terms, Intellectual Ventures will split the payment with the licensees.

Facebook, Amazon.com and Microsoft also are part of the group, the court filing shows, along with Samsung, Adobe Systems (ADBE), Fujifilm, Huawei, HTC and Shutterfly. The auctioned patents -- more than 1,100 related to the capture, manipulation and sharing of digital images -- were previously estimated by advisory firm 284 Partners LLC to be worth as much as $2.6 billion.

"This is a fraction of our overall patent portfolio," said Chris Veronda, a spokesman for Rochester, New York-based Kodak. "We retain ownership of about 9,600 other patents for our ongoing businesses."

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The agreement resolves all patent-infringement lawsuits between Kodak and the 12 licensees, Veronda said. That includes suits Kodak had against Apple, RIM, Fujifilm, HTC, Samsung and Shutterfly. In a May filing, Kodak had said Apple alone owed it more than $1 billion in patent royalties.

Before uniting as one bidding group, Apple and Google had led competing consortiums bidding for Kodak's patents, people familiar with the situation said earlier this year.

The two groups joined forces in August as the initial auction date approached, a person familiar with the process said today. Combining allowed each company to only pay for the patents and protection it needed.

Unlikely partnerships occur in patent sales because they allow competitors to neutralize potential infringement litigation. A group including Apple, Microsoft and RIM bought Nortel's more than 6,000 patents for $4.5 billion out of bankruptcy last year. Google lost the auction for those patents after making an initial offer of $900 million.

A May ruling against Kodak by the U.S. International Trade Commission dealt a blow to the company's pursuit of a higher price for its patents. The decision, the result of a two-year legal fight against Apple and RIM over a patent for previewing digital images on cameras, was upheld in July. It dashed Kodak's plans to pursue royalty payments from Apple and RIM it once estimated at more than $1 billion.

After the ITC ruling, bidders lost interest in buying the patents to pursue infringers for compensation and licensing fees, the person familiar with the process said Tuesday, asking not to be identified because the details aren't public. The sale became defensive as buyers offered to pay only enough to cover their potential exposure to litigation with Kodak, the person said.

Kodak needed to sell the patents for at least $500 million under a November agreement -- codenamed Komodo -- to obtain $830 million in financing to exit bankruptcy in the first half of 2013. That funding also requires progress in the sale of two business units and resolution of U.K. pension obligations. The patent sale had to be agreed upon by Jan. 31 and must close by Feb. 28.

In court documents, Kodak said it had generated more than $3 billion in revenue by licensing some of the patents to outside users, including Samsung, LG, Google's Motorola Mobility unit and Nokia.

Selling Businesses

CEO Antonio Perez has been selling businesses to shrink Kodak and fund its shift into commercial printing and packaging after seeking Chapter 11 protection in January. The company is also selling its consumer-film, photo- kiosk and commercial-scanner businesses and shuttering its consumer inkjet-printer unit.

Kodak filed for bankruptcy after years of burning through cash while the rise of digital photography eroded its film business. The company has announced almost 4,000 job cuts this year and spent $3.4 billion on restructuring before bankruptcy, including payouts to fire 47,000 employees since 2003.

The 132-year-old imaging company listed $5.1 billion in assets and $6.75 billion in debt in its bankruptcy filing.